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Manufacturing Credit Growth Hits 3-Year Low
3 Jul
Summary
- Manufacturing MSME credit growth is at its slowest in three years.
- Only 41% of registered small businesses have accessed formal credit.
- Lenders show a cautious stance, with new borrower share declining.
Credit growth for small businesses in India's manufacturing sector has reached a three-year low, despite being a key economic driver. Outstanding balances to these enterprises grew at 13% annually over the past three years, totaling Rs 15.3 lakh crore as of FY26. This pace is slower than the 'trades' sector's 16% growth and the 'professional and other services' sector's 17% expansion during the same period.
Data from TransUnion Cibil and Sidbi indicates that only 41% of registered MSMEs have accessed formal credit, with a declining share of new-to-credit customers, which fell to 42% in FY26 from 52% in FY23. This suggests a re-evaluation of lending strategies by financial institutions. The manufacturing sector's asset quality improvement also lagged behind trades, with a smaller decline in overdue advances.
Over half of the manufacturing credit is concentrated in textiles, engineering, and food processing. Maharashtra, Gujarat, and Tamil Nadu are the leading states for manufacturing sector lending. While overall portfolio quality remains stable, delinquency in entity-wise unsecured business loans has risen to 7.2%, and in the Rs 2-10 lakh loan segment for MSMEs, it has increased to 5.6%.
Boosting credit accessibility for emerging businesses requires collective efforts from all stakeholders to make credit more responsive to their needs. States with low credit penetration and low new-to-credit originations present opportunities for expansion, as new borrowers generally exhibit moderate-to-good credit profiles.
